Making Ethical Decisions and Managing a Socially Responsible Business Chapter 4

Chapter 4 Learning Goals 1.W 1.What philosophies and concepts shape personal ethical standards, and what are the stages of ethical development? 2.H 2.How can managers influence organizational ethics? 3.W 3.What are the techniques for creating employee ethical awareness? 4.W 4.What is social responsibility?

Chapter 4 Learning Goals (cont’d.) 5.H 5.How do businesses meet their social responsibilities to various stakeholders? 6.W 6.What are the global and domestic trends in ethics and social responsibility? 7.H 7.How does the legal system govern business transactions and settle business disputes?

Chapter 4 Learning Goals (cont’d.) 8.W 8.What are the required elements of a valid contract; and what are the key types of business law? 9.W 9.What are the most common taxes paid by businesses?

Ethics: a set of moral standards for judging whether something is right or wrong

Learning Goal 1 WWhat philosophies and concepts shape personal ethical standards, and what are the stages of ethical development? –Utilitarianism approach –Justice approach –Three stages of ethical development Preconditional ethics Conventional ethics Postconventional ethics

Individual Business Ethics Utilitarianism the consequences of an act determine whether it is right or wrong Individual Rights human rights, legal rights Justice what is fair according to societal standards Stages of Ethical Development preconventional, conventional, postconventional

Types of Justice 2 ways that people judge fairness: Procedural justice Is the process fair? Distributive justice Is the result fair?

Learning Goal 2 HHow can managers influence organizational ethics? –Recognize the categories of unethical business actions –When faced with ethical dilemmas, teach employees to use The three-question test Front page of the newspaper test –Management should lead by example

How Organizations Influence Ethical Conduct Recognizing Unethical Business Actions Resolving Ethical Problems in Business Ethics Training Establishing a Formal Code of Ethics

Types of Unethical Business Actions Taking things that don’t belong to you Saying things you know aren’t true Giving or allowing false impressions Buying influence or engaging in a conflict of interest Hiding or divulging information Taking unfair advantage Committing improper personal behavior Recognizing Unethical Business Actions

Types of Unethical Business Actions Abusing another person Permitting organizational abuse Violating the rules Condoning unethical actions Recognizing Unethical Business Actions

“Cyberslacking” on the Job Personal use of the Internet at work is a concern for many employers Of the time employees spend online at work, 1/3 of it is spent ‘recreationally’ General news Investment Other Shopping Sports Entertainment Travel Pornography Source: Surfwatch Checknet/Newsweek, Nov. 29, 1999, p. 63 How employees slack on the Internet:

Ways of Resolving Ethical Problems Three-Questions Test Is it legal? Is is balanced? How does it make me feel? Front Page of the Newspaper Test Leading by Example Ethics Training Resolving Ethical Problems in Business

Learning Goal 3 WWhat are the techniques for creating employee ethical awareness? –Ethics training Analyzing ethical dilemmas Discussing ethical dilemmas –Companies can heighten ethical awareness by Creating codes of ethics Distributing codes of ethics

Learning Goal 4 WWhat is social responsibility? –Concern of businesses for the welfare of society as a whole –Obligations go beyond Making a profit What is required by law or union contract –Companies engage in Illegal and irresponsible behavior, Irresponsible but legal behavior, or Legal and responsible behavior (vast majority)

Social Responsibility: the concern of businesses for the welfare of society as a whole; includes concerns beyond legal and contractual obligations

Pyramid of Business Responsibility Economic Responsibility Legal Responsibility Ethical Responsibility Philanthropic Responsibility Be a good corporate citizen Do what is fair Obey law Pursue profit

Two Dimensions of Social Responsibility: Legality 1. Legality Does the action break a law? Responsibility 2. Responsibility Is the action responsible? Does the action benefit society?

Discussion: Think of an example of each combination ResponsibleIrresponsible Legal Illegal Follows laws and benefits society Benefits society, but breaks laws Follows laws, but harms society Harms society and breaks laws

Examples ResponsibleIrresponsible Legal Illegal Follows laws and benefits society charitable donation of profits Benefits society, but breaks laws tax evasion by a charitable organization Follows laws, but harms society cigarette advertisements targeted at teens Harms society and breaks laws illegal disposal of waste material

Learning Goal 5 HHow do businesses meet their social responsibilities to various stakeholders? –Employees Provide a clean, safe working environment Build employees’ self-worth through empowerment programs –Customers Provide good, safe products and services –General public Be good corporate citizens –Protect the environment –Provide a good place to work

Learning Goal 5 (cont’d.) HHow do businesses meet their social responsibilities to various stakeholders? –Corporate philanthropy Contributing cash Donating goods and services Supporting volunteer efforts of employees –Investors Companies should try to earn a reasonable profit for the owners

Responsibilities to Stakeholders Responsibility to Employees Responsibility to Customers Responsibility to the General Public –environmental protection –corporate philanthropy Responsibilities to Investors

Discussion: What do You Expect from Companies? When I am a(n): Employee Customer Member of Society Investor I expect:

Examples: When I am a(n): Employee Customer Member of Society Investor I expect: job security, benefits, flexibility, compensation safe products, response to complaints, honest advertising charitable contribution, minimal environmental harm profits, disclosure, ethical practices

Stopping Sweatshops No Sweat The US Department of Labor has formed an organization, No Sweat, to put an end to sweatshops 3 things consumers can do: –Ask retailers where and how garments are made –Ask retailers if they purposefully don’t buy from sweatshops –Ask retailers if they support “No Sweat” clothing Source: No Sweat,

Learning Goal 6 WWhat are the global and domestic trends in ethics and social responsibility? –Corporate philanthropy focusing on strategic giving –New social contract between employer and employee Each assumes part of the responsibility for maintaining jobs Employees find ways to add value to the business –Multinational corporations must assume a global set of ethics and responsibility Understand local customs Involve local stakeholders in decision making Be sure suppliers are not involved in human rights violations

Trends in Business Ethics: Strategic Giving ties philanthropy to corporate mission Social Contracts with Employees Carrying Ethical Conduct Overseas

Strategic Giving Example $3.35 billion In 1999, Bill Gates, CEO of Microsoft, donated a total of $3.35 billion to Gates Learning Foundation, –The Gates Learning Foundation, which provides computers & software to libraries in low-income areas William H. Gates Foundation –The William H. Gates Foundation, which grants money to aid world health & human services and to local Seattle causes Source: Fortune, Mar. 1, 1999, p. 35

Learning Goal 7 HHow does the legal system govern business transactions and settle business disputes? –U.S. court system Federal and state courts trial courts –Most cases start in trial courts appellate courts –Decisions can be appealed to appellate courts U.S. Supreme Court –The U.S. Supreme Court  Nation’s highest court  Court of final appeal –Private arbitration or mediation Alternatives to litigation Cheaper than going to court

Learning Goal 8 WWhat are the required elements of a valid contract; and what are the key types of business law? –Contracts must meet five requirements: Mutual assent Capacity Consideration Legal purpose Legal form

Learning Goal 8 (cont’d.) WWhat are the required elements of a valid contract; and what are the key types of business law? –Key types of business law: Tort law – settles disputes involving civil acts that harm people or their property Product-liability law – governs responsibility of manufacturers and seller for product defects Bankruptcy law – gives businesses or individuals a way to be relieved of their debts Price fixing and deceptive advertising laws Consumer rights laws

Learning Goal 9 WWhat are the most common taxes paid by businesses? –Income taxes –Property taxes –Payroll taxes –Sales taxes –Excise taxes